Spotify’s new royalty scheme picks the winners

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Happy Thanksgiving week! I will be out tomorrow making twice baked potatoes, putting together holiday baby outfits (many tiny overalls will be worn!!), and attempting a night drive to Long Island without hitting Southern State traffic or eliciting baby rage. This is to say, there will be no Hot Pod Insider this week and I will return next Tuesday. But if you want to be able to say “Yeah, I heard about that” at your own bipartisan Thanksgiving gathering, I had a piece last week for Insiders diving into the Ben Shapiro / Candace Owens feud roiling the conservative podcast space. Enjoy (?)!

Got a bunch of Spotify news today, including confirmation of its new royalty model and a report that it is shopping for a new ad agency. Plus, Pushkin Industries unionizes after a fraught year.

Spotify makes it official with royalty changes

A few weeks ago, Music Business Worldwide broke the news that Spotify is revamping its revenue model, which includes demonetizing the lowest-played tracks on the platform. Spotify largely confirmed those plans in a blog post published today.

Starting early next year, Spotify will implement the following changes: it will start charging labels and distributors a fee when “flagrant” streaming fraud is detected on their accounts; “noise” tracks, which are entirely composed of non-music audio like static, airplane sounds, and other forms of white / pink / green / whatever noise, will only be monetized after two minutes of listening, rather than 30 seconds for a song; and the company will only monetize tracks that have amassed 1,000 plays in the past 12 months.

“While each of these issues only impacts a small percentage of total streams, addressing them now means that we can drive approximately an additional $1 billion in revenue toward emerging and professional artists over the next five years,” the company blog post says.

The first two of those changes have gone over without much of a fight. Streaming fraud distorts the profit pool, and it makes perfect sense that labels and distributors need to take some responsibility for flagging tracks where such fraud is obvious. And if there is anyone who really believes the creator of a 31-second clip of a washing machine deserves the same payout as a music artist, I have yet to meet them (maybe it’s you! #justice4washingmachinenoisecreatorz). 

But the third change, the payout threshold for songs, has generated a lot of blowback from long-tail creators and those who recognize their place in the industry.

Spotify argues that putting those royalties — which amount to $40 million per year — back into the pool to be distributed among higher-earning artists is a practical necessity. The company says that tracks that are played between one and 1,000 times per year generate $0.03 on average per month. On the higher end of that scale, based on industry understanding that tracks conservatively earn $0.003 per play, tracks bring in more like $0.25 per month. But either payment is often too low for artists to extract from their distributors.

Last month, I spoke with industry experts about what such a change means. In concrete terms, not a lot: $3 a year hardly makes much of a financial difference to independent creators, nor, frankly, does the fraction of $40 million that the big labels will get. But it does signal a shift in how Spotify works and for whom it works. It was long understood to be the most creator-friendly of the big streamers, with a lower barrier to entry than either Apple or Amazon. Instead, they are now drawing a line.

“They’re deciding who’s professional and who’s not,” SoundExchange CEO Michael Huppe told Hot Pod, “who reaches a level where they deserve to hop in and take a swim in the royalty pool.”

Report: Spotify shops for a new ad agency

Just as Spotify tinkers with its music model, Business Insider reports that the company is reportedly looking for a new ad agency as the company pulls back on marketing spend. The streamer has been with UM since 2017 and is considering other agencies, including Publicis.

“Today, UM is Spotify’s agency of record,” Spotify spokesperson Erin Styles told Hot Pod. “Spotify constantly evaluates its marketing goals and bigger picture media trends.”

Spotify’s reduced marketing spend was a topic that came up a few times during its latest investor call. CEO Daniel Ek pointed to that budget cutback as an example of the company’s newfound efficiency and insisted that such austerity will continue next year. “We started seeing top line holding up and even accelerating at a lower marketing expense. And we’ve seen this trend now play out for a few quarters. Initially, I was kind of skeptical whether that would be able to keep going. But with the recent learnings, it seems very possible that is the case and that we are simply increasing our rate of learning at a great pace across the marketing team and that I think is a very positive sign going into 2024,” he said.

How does this affect podcasts? Podcast marketing is notoriously difficult, and marketing was a big point of contention with the Gimlet and Parcast unions. They argued that, in addition to being exclusive to the platform, their shows did not get enough marketing support to boost or sustain download numbers. I’ll be curious to see how much marketing Spotify puts into the originals that remain and if the strategy ends up being markedly different than before. That is, of course, if the company ends up hiring a new agency after all. 

Pushkin Industries employees unionize after repeat layoffs

Last week, a group of 10 Pushkin Industries producers, editors, and engineers announced they are unionizing with the Writers Guild of America, East (disclosure: Vox Media, which owns The Verge and Hot Pod, is also unionized with WGAE). Pushkin, which was co-founded by Revisionist History host Malcolm Gladwell, voluntarily recognized the union.

The move comes after the one-time industry darling has struggled to adapt to the new economics of podcasting, resulting in three rounds of layoffs this year alone and a major leadership shift. Last month, Pushkin co-founder Jacob Weisberg stepped down as CEO, and Transmitter founder Gretta Cohn, who sold her studio to Pushkin last year, became the new president.

I recommend checking out this piece from Lachlan Cartwright at The Daily Beast, which dives into the uncomfortable discussions had at a staff meeting over the summer regarding Weisberg’s business decisions, Gladwell’s editorial guidance (or lack thereof), and company diversity goals.

That’s all for now! Happy Thanksgiving, and see you next week.